Supply Chain Digest Says...

What do you say?

Coming out of the financial crisis, container lines began adding new ships in earnest, especially of the megaship variety of 18,000 TEU or more. But with global trade volumes and container volumes slumping well below pre-recession volumes, the industry was awash in capacity roughly 2011 through 2015.

As shown in the graphic below from the analysts at Drewry Shipping, new ship orders and deliveries peaked in 2015, leading to a painful year for rates for carriers and good news for shippers in 2016.

But in the face of continued slow volume growth, carriers did manage to show some capacity discipline in 2016 and again in 2017, again as shown in the chart from Drewry. Orders for new ships have especially slowed, with deliveries somewhat stronger based on contracts signed several years prior.

But forecasting the pace of new ship deliveries is far from easy, Drewry says, as "The orderbook is constantly evolving as deliveries are made and new orders come in, while demolitions and the occasional cancellation also reduce the pot."

What’s more, Drewry says, quite often the scheduled delivery date does not match with the actual delivery date, "making pinning down a baseline like trying to hammer a nail in jelly."

But forecasting on nevertheless, Drewry is predicting that while the total amount of container capacity that will be delivered between 2018 and 2022 is consistent with its previous estimates, much of the earlier projected deliveries in the next couple of years will in fact slip further into the future.

Specifically, Drewry had earlier projected deliveries of some 1.46 million TEU in 2018. Now, it has downgraded that estimate to be in the region of 1 million to 1.2 million TEU.

"In essence, over the space of six months owners have pared back the 2018 total by as much as 600,000 TEU," Drewry says.

It also means that the annual delivery total for 2018 will be broadly unchanged from 2016 and 2017.

Importantly, the new supply growth forecast for the current year is lower than demand growth projections. Based on the level of deliveries, "the market will still be over-supplied, but not catastrophically so, and certainly showing signs of improvement" – if you are a carrier that is. It is not such good news for shippers.

And the megaship trend, or what Drewry calls Ultra Large Container Vessels (ULCVs), meaning ships of 18,000 TEU or more, will continues to gain share.

As seen in the graphic below, Drewry says ULCVs will comprise almost 40% of total TEU deliveries in 2018 and nearly 70% by 2020.

Summing it up, Drewry concludes by writing that "The reality of supply growth in 2018 is far less frightening [for carriers] than it was previously. We expect new ordering activity to rise off the floor, but stay at a level that incrementally improves the supply-demand balance over the next five years."

Unless you are a shipper, that is.

How are you seeing the supply-demand balance in container shipping playing out? Let us know your thoughts at the Feedback section below.